Transcript LG/15/21

Emission Permits
Two papers:
1. Emission permits in the SEEA
2. JI & CDM (with Cor Graveland and Sjoerd
Schenau)
Both papers were discussed at the 2nd OECD /
Eurostat permit taskforce meeting in
Luxembourg
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
Emission permits in SEEA
Starting point of the discussion
• Outcome LG meeting in Canberra:
SEEA should follow SNA in any direction it goes;
• What to do with:
In the SEEA there is an underyling asset being the
atmosphere?
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
SNA decision on permits
Pollution permits “do not involve the use of a natural
asset (there is no value placed on the atmosphere so it
cannot be considered to be an economic asset) and
therefore classified as taxes even though the permitted
activity is one of creating an externality” (§17.363).
OECD / Eurostat Task Force:
• When should a tax be recorded at what value?
• What kind of asset does the permit represent?
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
Asset boundaries
SNA boundary of economic assets based on
economic ownership and direct benefits to the
owner
SEEA uses a broader definition based on the notion
of environmental benefits (SEEA boundary is less
precise). The atmosphere is deliberately included
(SEEA 2003).
→ In SEEA there is an underlying asset!
→ Implications for permits?
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
What should the treatment
in SEEA be in the case of
an underyling asset?
Considerations:
• An ETS permit does not give resource access for
longer time periods (like mobile phone licence);
• A permit represents a (pre)payment for the use of
a predefined quantity of a natural resource being
the armosphere (quite similar to the New Zealand
annual catch entitlements);
Conclusion:
• A permit should be accounted for as property
income to government
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
Accounting implications of
a permit as resource rent
• When should a resource rent be recorded and at
what value?
→ At moment of polution, valued by the permit
market price;
• What kind of asset does the permit represent?
→ A non-produced non-financial asset (resource
lease headed under contracts, leases and
licences)
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
(dis)Advantages of permit
as resource rent
Pro’s:
• Represents economic reality of ETS as a way of
assigning property rights;
• Simplicity (no split asset or financial asset
complexities);
• JI and CDM allowances fit in quite nicely;
• No cash – accrual controversies (as with taxes);
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
(dis)Advantages of permit
as resource rent
Pro’s:
• Represents economic reality of ETS as a way of
assigning property rights;
• Simplicity (no split asset or financial asset
complexities);
• JI and CDM allowances fit in quite nicely;
• No cash – accrual controversies (as with taxes);
Con:
• SEEA does not follow SNA
(which seems a smart thing to do! ;-)
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
Joint Implementation (JI) &
Clean Development
Mechanism (CDM)
Additional means for so-called Annex 1 countries to
achieve Kyoto emission targets by carrying out
emission reduction projects in other (host)
countries.
In case the host country is:
• Non Annex 1 countries → JI
• Other countries (without Kyoto targets) → CDM
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
How does JI-CDM work (1)?
• Participation in a foreign project (direct investment
or purchase of allowances);
• Project leads to additional greenhouse emission
reductions (compared to so-called baseline);
• Supervised by UNFCCC (via Designated National
Authorities);
• Project generate emission permits over its entire
lifetime;
• JI credits: Emission Reduction Units (transfer of
existing emission permits;
• CDM credits: Certified Emission Reductions (are
additional).
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
How does JI-CDM work (2)?
• Governments may participate in JI-CDM (Dutch
government does so);
• CERs and ERUs are (almost) perfect substitutes
with standard ETS permits;
• ETS permits (and ERUs) are issued (auctioned) by
governments while CERs are issued directly by the
UNFCCC executive Board (supranational body);
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden
Accounting implications of
JI-CDM
• Depend on treatment of ETS permits;
• ETS permits, CERs and ERUs are perfect
substitutes and should therefore fall under the same
asset category;
• The tax treatment seems not applicable to CER
permits (these are neither issued by national
governments nor auctioned);
• Also government participation in JI and CDM
projects does not very well allign with the idea of a
permit as tax.
15th London Group Meeting, Nov 30 - Dec 4, Wiesbaden